General Management Group participated in the acquisition of both domestic and international transportation businesses in 2020 and 2021, all of which found themselves in Chapter 11 bankruptcy. CEO Emmett McNulty says when buying distress companies, the group is industry agnostic. But there is one thing to look for: assets.
"We love things like transportation," McNulty says. "We've been in railroads before. It has real assets, so asset-based transportation is a niche that we like to play in. And when COVID hit, our firm believed, and I think believed accurately, that the transportation industry was not going anywhere."
He says during that time, multiple organizations, including some very large organizations, carved up their businesses. General Management Group was introduced to them right before they went to liquidation.
"Many times, they were abandoned assets," he says. "Nobody knew, because everything was shut down, what was going to happen."
The company would get a call looking for help turning those assets around. What his group saw, he says, was that in transportation it was just a matter of time before it was back on its feet because it's necessity for society, so it was likely to retain its value.
When the company steps in, he says they must be particularly careful to structure deals that hold each party equally accountable, especially when dealing with international businesses.
"Let's be straightforward here: just because they're in Chapter 11 in the United States does not mean they're in Chapter 11 in Malaysia or in Mexico," he says.
When they get introduced to such deals, they lay out parameters to effectively restart the business and not force it to go into liquidation. That requires many filings, which is a lot of legal work and a lot of guarantees from both sides.
"It's an equally equitable transaction in the extent of what is being transferred," he says. "We may buy the assets at what we believe is a discount but in exchange we will require the other parties to basically guarantee that they're going to do the things necessary for us to get those assets in a capacity that we can work with them."
Those looking to acquire a distressed business or distressed assets for the first time, McNulty says they need to know the industry and they assets they're buying.
"That's the most important thing because sometimes it doesn't work and if you don't buy the assets right, not everybody's made whole," he says. "But if you buy the assets right and you put the right plans in place, at the end of the day everyone comes out, to an extent, a winner."
McNulty spoke at this year's Boston Smart Business Dealmakers Conference about what to keep in mind when buying distressed companies. Hit play on the video to catch the full interview.